Harness technology to transform your HR function
Advances in technology continue to strengthen the HR department, moving the focus away from manual processes and massive spreadsheets and toward using HR tools to drive a business’ success. But choosing the right technology and leveraging it effectively require a well-thought-out effort.
How do organizations, particularly small to mid-sized ones, assess and justify the investment in an automated HR management system (HRMS)? And, once a company has decided on an HRMS, how can it be implemented effectively so that the hoped-for return on investment will be achieved?
What’s new in HRMS technology?
If you looked at an HR management system a few years ago and decided your company could not justify the expense or devote the necessary IT resources, now is the time to investigate again. The latest generation of HRMS programs is not only feasible for small and mid-size organizations but essential to cutting administrative costs.
HRMS programs typically include three components: payroll, HR and benefits with optional employee and manager self-service modules. These integrated software solutions improve an HR department’s efficiency by automating the tracking of an employee’s life cycle from hire to retire, with links to benefits carriers and other organizations that the company interacts with. While components such as benefits enrollment and payroll are sold as standalone software, an HRMS bundles these and more into one package.
Many of today’s most effective HR systems are Internet-based and do not require the customer to make a large capital outlay or install and continually update software. Software-as-a-service is an important trend; such offerings cost a customer significantly less upfront than licensing software, and they also relieve the customer of security responsibilities. And web-based means that employees and managers can access the HRMS 24/7, from any location where Internet service is available.
Business impact of an HRMS
An automated HRMS frees up HR and benefits staff to focus on strategic initiatives, and provides tools that allow HR staff to advise senior management on workforce planning issues.
One issue of concern today is the impending labor shortage, which will force all employers to recruit and retain as effectively as possible. According to Lisa Rowan, program manager for HR and Talent Management Services at the HR analysis firm IDC, who was quoted recently in HR Management magazine: “Technology is going to be able to help organizations pinpoint where the critical talent is needed in the organization. … Organizations are going to need to do an awful lot of upfront (workforce) planning in order to not be caught short (as the labor pool tightens).
“Technology will also play an important role in helping employers identify top performers,” Rowan added, “rewarding them appropriately and … improving (employers’) ability to retain them.”
Measuring the return on investment of an HRMS
While opportunities for strategic gains are promising, many smaller companies just beginning to adopt HR technology will be looking for firm ROI projections – and will likely find that in substantial administrative savings. While HRMS costs vary widely, based on the features the customer chooses and how effectively the customer implements them, a firm employing 200 may adopt a program for roughly $12,000 to $15,000 a year. Industry experts say that, based on the experience of many customers, the savings gained in just 12 to 18 months will pay back the amount invested. Further, customers that employ staff in multiple locations, experience a lot of turnover and/or plan rapid growth or acquisitions may enjoy even quicker returns on their investments.
Such projections are realistic when one considers that, according to the technology and market research company Forrester Research Inc., the average HR department devotes 60 to 80 percent of its time to the repetitive tasks necessary to administer benefits and manage payroll. As well, employees and managers spend countless work hours asking and answering basic employee questions.
In contrast, a web-based, employee self-service system allows employees to answer their own questions and process routine information such as changes in family status, allowing greater accuracy and timeliness. Further, line mangers can, without help from HR, access online information regarding employee work history, compensation and past performance reviews.
Additionally, users of HRMS programs typically reap savings in some of the following areas:
- Recruitment. The typical organization takes 90 days to fill an average position, according to the Saratoga Institute, resulting in lost productivity and preoccupation for HR and managers. But costs can drop precipitously when employers use technology to post job openings, build an applicant pool, review applications and hire.
- Processing of new hires and terminations. When a new hire submits his or her own information online into a web-based HR management system, that data automatically populates up to a dozen databases – payroll, medical and dental plans, 401(k) plans, company directory and so on. Similarly, a termination will trigger the same kind of automatic corrections, ensuring that the organization does not continue, for example, to pay benefits premiums for a terminated employee.
- Benefits enrollment. In most organizations, countless work hours are squandered while employees review their options, make elections and rewrite similar information on multiple forms. HR spends most of the open enrollment period answering questions and entering employee elections into the HR system. An automated HR management system, in contrast, greatly reduces the time required for these tasks.
- Reconciling carrier invoices and avoiding overpaying insurance carriers. In your organization, how quickly are insurance carriers notified when an employee departs? If that communication is delayed even slightly, your organization may pay unnecessary premiums. And once an error is discovered – through a time-consuming, manual reconciliation effort – collecting a refund from the carrier may be difficult or impossible. If your organization is typical, you may overpay premiums by up to 7 percent per year – totaling perhaps tens of thousands of dollars for a small firm. With an HRMS, however, bills are automatically reconciled, human error is avoided, and overpayments are averted. An HRMS also ensures COBRA compliance in the case of terminated employees.
- Employee communication. Many employees today do not know exactly how much the company spends on their benefits. An effective HRMS will calculate the employee’s personal compensation package, including benefits and paid time off, and provide that along with other important information. Employees and their spouses can access the system at home, reducing the work time spent on such matters – and leading to greater employee satisfaction and retention.
- Tracking training requirements. An HRMS relieves managers, HR staff and employees of the burden of remembering to schedule training and of tracking completed modules, ensuring that all training required by law or for professional certifications will occur on time.
- Printing and distribution. Companies can save thousands of dollars every year by distributing electronic versions of forms, pay stubs, policy handbooks, summary plan descriptions, employee directories and other documents.
How to shop for an HRMS
With all of the HRMS options now available, where does a small company begin its research? Experts advise:
- First, draft a needs analysis. Do you want simply to automate daily HR activities, or do you also want to streamline recruitment, link to carriers, track training and perform other functions? What are your organization’s growth and/or acquisition plans? Will you add employees overseas? The HRMS you choose must be scalable to accommodate your growth.
- Determine budget. Manual tracking of benefits and HR is time-consuming, though often not formally budgeted. Determining what you can spend will involve estimating the time your organization currently spends on such tasks.
- Then, meet with vendors to view demos and discuss how their capabilities match your current and future needs. In evaluating vendors and software, consider:
- The flexibility and scalability of the system.
- The ease of use for managers and employees.
- How the system will be integrated with other internal software.
- How security is managed.
- The vendor’s commitment to continually upgrading and investing in software.
- Insist on vendor references, both positive and negative.
Conclusion
As the war for talent and demanding business conditions require companies to continue achieving more with a leaner HR staff, technology will play an ever-more-pivotal role for companies of all sizes.
HR management systems that a few years ago were practical only for companies employing thousands now are accessible to employers of 100 or fewer. Companies that have not yet automated their HR function will soon find themselves at a competitive disadvantage against organizations that are already reaping technological efficiencies.
HR Works’ Kathy Helton contributed to this column.
